KNTK - NASDAQ

Good morning. Thank you for attending today's Kinetik Second Quarter 2024 Results Call. My name is Jennifer and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions]. I would now like to pass the conference over to Maddie Wagner, Director of Investor Relations. Maddie, please proceed.

Thank you. Good morning and welcome to Kinetik's Second Quarter 2024 earnings conference call. Our speakers today are Jamie Welch, our President and Chief Executive Officer, and Trevor Howard, our Chief Financial Officer. Other members of our senior management team are also in attendance for this morning's call. The press release we issued yesterday, the slide presentation and access to the webcast for today's call are available at www.kinetik.com. Before we begin, I would like to remind all listeners that our remarks, including the question-and-answer section will provide forward-looking statements and actual results could differ from what is described in these statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. We may also provide certain performance measures that do not conform to U.S. GAAP. We provided schedules that reconcile these non-GAAP measures as part of our earnings press release. After our prepared remarks, we will open the call to Q&A. With that, I will turn the call over to Jamie.

Thank you, Maddie. Good morning, everyone, and thank you for joining our call today. I am pleased to share this past quarter's results with you this morning, as well as provide an update on integration activities following the Durango acquisition. First, I would like to thank our team for their tremendous efforts over the past few months as we closed both the GCX divestiture and Durango acquisition, began integrating Durango personnel and assets, battled the summer heat in the Permian, and recovered from Hurricane Beryl in Houston. The team has done a fantastic job, so thank you. In May, we announced several highly strategic transactions, expanding our footprint into the Northern Delaware basin, diversifying our geographic footprint, and customer base strengthening our balance sheet, and ultimately advancing Kinetik's long-term strategic vision. At the beginning of June, we closed the GCX divestiture, and at the end of June, we closed the Durango acquisition, representing the two largest transactions since our merger in 2022. These announcements quickly followed the in-service of our organic gathering expansion into Lea County at the beginning of the first quarter. So for context, we had zero operations in New Mexico-Delaware Basin a year ago, and today nearly 20% of our volumes are sourced from New Mexico. As I've mentioned over the past few months since announcing these deals, producers are very excited that Kinetik has expanded north and is now investing the much-needed capital to keep up with producers' demand for treating and processing. The commercial team has been highly active with both current and prospective customers in New Mexico, and the growth opportunities we see are plentiful. As such, we have sanctioned pre-FID work scope and long lead critical path items for Kings Landing II, which would double the processing capacity at the Kings Landing Processing Complex. We have also advanced our subsurface and permitting workstreams for an acid gas injection well that enables an important treating solution for natural gas containing high levels of H2S and CO2 at Kings Landing. By undertaking these scopes of work today, we will accelerate the timeline from formal FID to in-service by nearly two quarters. This is a significant new development for our Northern Delaware business and the customers that we serve in the region. Announced alongside Durango in May was our 15-year low-pressure and high-pressure gathering and processing agreement with a large existing customer with acreage in Eddy County that offset the Durango system. More recently, Kinetik expanded gathering, treating, and processing services with one of our largest customers in Lea County. This amendment, which will go into effect in the fourth quarter of this year, increases the existing MVC and expands overall margin. The Durango acquisition, the new Lea County amendment, and the previously announced long-term gas gathering and processing agreement in Eddy County represents approximately a $1 billion of strategic investment at a low- to mid-single-digit adjusted EBITDA multiple and significantly enhances our position across the entire Delaware basin. In May, we developed a 100-day plan to close and integrate Durango's assets and personnel. I am very pleased to report that the transition has been seamless. We have already identified several process and system improvements that have begun generating value and we have developed a robust integration plan that includes preventative maintenance, facility upgrades, and capacity expansions to existing infrastructure at the Dagger Draw Process and Complex. Following closing, we immediately took over project management responsibilities for all growth and maintenance capital projects. Construction is progressing well on the 200 million cubic feet per day Kings Landing I and that remains on schedule with an expected in-service date in April of next year. We are also mid-construction on a 20-inch pipeline running across the Durango system. That will provide connectivity to Kings Landing upon in-service and greatly improve system hydraulics. Additionally, we began deferred maintenance projects to elevate operations to Connecticut's safety and environmental standards. We have also welcomed over 70 talented employees to the Connecticut team. The feedback we have received from new employees has been positive and they are enjoying the function-based structure and management of our operations team. Turning to our results, in the second quarter we processed gas volumes of 1.58 billion cubic feet per day representing 7% growth year-over-year. Despite wellhead volume curtailments in response to Waha Hub pricing which averaged approximately 140 million cubic feet per day. Second quarter adjusted EBITDA was over $234 million, a 13% increase year-over-year, reflecting new volumes from the MVC-backed agreements in Lea County and improved commodity margins as well as contributions from the expansion of PHP and Delaware Link. This was partially offset by price-related gas volume curtailments and only two months of contribution from GCX. So for context, if we closed Durango contemporaneously with the sale of GCX, Connecticut's second quarter adjusted EBITDA would have increased to almost $238 million. With the successful completion of the Durango and GCX transactions, we are revising upwards our prior 2024 guidance to reflect the underlying strength of our business as well as the impacts of the transactions. Trevor will discuss this in more detail momentarily. I'm incredibly impressed by our team's focus and execution over the past few months. Their dedication and attention to detail allowed for both transactions to close on time and has resulted in a swift integration process. And now with that, I'd like to hand the call over to Trevor.

Thanks, Jamie. In the second quarter, we reported adjusted EBITDA of $234 million. For the quarter, we generated distributable cash flow of $163 million and free cash flow was $105 million. Looking at our segment results, our midstream logistics segment generated an adjusted EBITDA of $148 million in the quarter, up 7% year-over-year. Largely driven by improved commodity margins, increased process gas volume, and continued marketing benefits on our PHP capacity despite the wellhead volume curtailment that persisted throughout the quarter. Shifting to our pipeline transportation segment, we generated an adjusted EBITDA of $94 million up 25% year-over-year. This increase was driven by contributions from the PHP expansion and Delaware Link and with only two months of contributions from GCX. Total capital expenditures for the quarter were $38 million. Our leverage ratio for our credit agreement stands at 3.4 times below our leverage target of 3.5 times. As Jamie mentioned earlier, we are revising upwards both our 2024 adjusted EBITDA and capital expenditures guidance to reflect earnings outperformance throughout the first half of the year and the successful completion of the Durango acquisition and GCX divestiture. We now estimate full year 2024 adjusted EBITDA in the range of $940 million to $980 million, a 3% increase at the midpoint versus the previous guidance range midpoint and implies over 14% growth year-over-year at the midpoint. Specifically within the midstream logistics segment, we now expect process gas volume growth in the high teens. Our new growth expectations are inclusive of six months of Durango's existing business, which includes approximately 200 million cubic feet per day of process gas volume from the Maljamar and Dagger Draw facilities. We expect the existing Durango volume to nearly double with the in service of the 200 million cubic feet per day Kings Landing Cryo in April of next year. Additionally, the Lea County MBC increase in margin expansion for gathering, treating, and processing will contractually begin in November. Our pipeline transportation segment will no longer reflect contributions from GCX following the divestiture. However, we expect the segment will continue to experience strong year-over-year growth throughout the remainder of the year with the full year benefits from Delaware Link and the PHP expansion. We have modestly updated our commodity outlook for the remainder of the year. Our revised guidance assumes approximately $77 per barrel for WTI, $2 for MMBtu for natural gas at the Houston Ship Channel Hub, and $0.60 per gallon for natural gas liquids. Today, approximately 13% of our remaining 2024 expected gross profit is directly influenced by commodity prices, which is primarily associated with Kinetik's equity volumes. Currently, our direct commodity link exposure is sourced from the following components, approximately 30% natural gas or ethane, 30% propane and methane, and 40% crude. As we mentioned during our Durango acquisition announcement call, with certain provisions of some of the Durango contracts, we retain ownership of the common stack [ph]. Therefore, WTI will represent a greater contribution of our direct commodity link gross profit going forward. Turning to our capital expenditures guidance, we now expect capital expenditures to be between $260 million to $300 million for the full year. This increase reflects capital for the construction of Kings Landing I, pre-FID work for Kings Landing II, and an associated acid gas injection well, the new and amended long-term gathering and processing agreements in Eddy and Lea Counties, and capital for integration and growth and maintenance costs associated with the existing Durango business. For context, roughly $100 million of the guidance increase is capital associated with Durango. The remainder of the increase is driven by new projects in New Mexico that have been announced since issuing our full year 2024 CapEx guidance in February. In fact, the projects included in our initial 2024 CapEx guidance are trending approximately 5% below budgeted costs. Our operations and commercial teams have done a tremendous job so far by optimizing scope and reducing construction costs where possible. We remain highly focused on our disciplined capital allocation approach. Our priorities are aligned with our strategy, which enables us to allocate capital to the highest return opportunities to maximize shareholder value. And with that, I would like to open up the line for Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Michael Blum with Wells Fargo. Michael, your line is now open.

Thanks. Good morning, everyone. I wanted to talk about the change in CapEx, specifically the 100 million related to Durango. I wanted to just provide a little more color. Should we think of that as growth capital that's earning a return? Is that maintenance? What is in that $100 million?

Good question, Michael. So $100 million should be filled in this context. It is growth capital, so it includes Kings Landing I. It is growth capital as it relates to, we talk about the 20-inch backbone pipeline across the system, which will allow for, obviously, additional volumes to be connected that will then obviously be used to fill up Kings Landing I, and some of this pre-FID and long lead critical path items that we've got sanctioned for Kings Landing II. So that is the bucket. If I was going to think about sort of remedial maintenance, it's probably $5 million of that amount. And maintenance is probably an equivalent amount on top of that. So that's pretty small.

Okay. Got it.

And think of the increase, honestly, Michael. That's about -- relative to the 125, 165, and I'm sure everyone would like sort of the -- maybe the bridge. So 125, 165 is where we started life. We said as we've gone through the entire conference circuit over the course of the spring, we said, listen, with the Eddy County announcement, $200 million gross spend, think of it as 50, 100, 50. 50 for this year, 100 for next year, and 50 into 2026. That's still, I think, I would put the Eddy County and the new Lea County amendment, which has got a little bit of capital, that's a good number. So take your 145 to being the midpoint of the original range and say, just add 50. And then for all the Durango stuff that we've talked about, Kings Landing 1, some growth capital, as well as now the pre-FID spend. Think of that as $9,800 million. And that should get you right on the number your guys are looking for. As you know, we spend so much time agonizing over making sure we look at every invested dollar and making sure that it's earning a clear return for our overall business. And we were very mindful when we set up our guidance this year. We obviously have had the opportunity to grow the business, which is incredibly exciting. And we are very, very focused on making sure we are free cash flow positive.

Got it. Thanks for all that. And then maybe a related question, since you're spending on Kings Landing 2, I know you're calling it pre-FID, but how should we think about timing for when that plan could be in-service?

So there is a bunch of items. I would say any decision on a new processing plan, from inception to completion in-service, is probably a two-year undertaking. There are items, and it's not necessarily just ordering a Cryo box from UOP Honeywell, but there is switchgear, there are transformers, there's a lot of associated kit that have very long-leaved items. So what we wanted to do was get ahead of that. If we were going to think out into the future of an in-service date, you would be looking at the beginning of third quarter '26.

Got it. Thank you so much.

Thank you. Our next question comes from the line of Jeremy Tonet with JP Morgan. Jeremy, your line is now open.

Hi, good morning.

Good morning, Jeremy.

Thanks for all the detail today. I just wanted to go to New Mexico a little bit more. Now that Durango has settled, I just wondered if you could provide a bit more color on what you see the landscape there. We've seen, I think, some private equity consolidation there. And just if you could update us, I guess, on the competitive landscape, the opportunities set there, that would be very helpful? Thanks.

Sure. So as we've talked before and as we've talked with investors and your peers, we are incredibly excited by the opportunity set that we see in New Mexico. Ironically, it is not just the northern Delaware, as you would think about the northern Delaware basin, but it's also the shelf. And the shelf is, I think, probably somewhat of a forgotten area that over time just hasn't got any particular attention or focus. But there seems to be a lot of smaller producers that have positions that would like to see that the rock quality is very good and they just need a processing outlet. So set a different way. The opportunity set is more plentiful than we could have ever imagined. As such, that has accelerated our decision-making on wanting to do get -- do the pre-FID expenditures on Kings Landing II because we can now see in our forecast that Kings Landing I will be fully sold out sooner than we ever could have imagined. As you also know, Jeremy, we were very clear when we announced Durango. You have 200 million cubic feet a day of actual process -- inlet processing capacity. And that's how we run. It's pretty static. 70, 75 million bucks of EBITDA, as we said on our callback when we announced this in May. Same-store sales, if you will, relative to the 2023 numbers. We bring on Kings Landing, April 2025, and you see that increase from that 70, 75 to almost $150 million of EBITDA run rate from that point forward. And as we've also talked to people, we are going to expand, Dagger Draw. We've got some expansion. We can expand a little bit, Kings Landing I, we will bring an idle [ph] Cryo that we've got that we'll actually go and add. We've got to work through takeaway on the residue side. We'll obviously work out what we're doing on the NGL side, but I think we very quickly will get from a 200 baseline of inlet today to probably the latter part of next year, we'll have 500 million cubic feet a day of processing capacity. And then into 2026, and you think about that statement on the third quarter, you'd be at 700. And the overall margins we see are pretty consistent. Even today, just given the lack of infrastructure, there's a need for treating, there's a lot of components, there's a lot of low pressure connections for some of the smaller producers, less high pressure connects up there than what we typically see, I would say, on our base business. So I do think it's a pretty, I think we've just found a phenomenal opportunity that we just couldn't be more excited about.

Got it. That's very helpful. Thank you. And I want to touch on one of the points you brought up there as relates to Permian egress in general. Just wondering updated thoughts on that given recent announcements. And also, I think having that capacity in Permian Highway was certainly a help in the quarter. And just wondering, I guess, how you think about that over the balance of the year? How much help would that provide having that capacity? And when do you think that kind of fades away?

So I'll answer the last part first. Obviously, we saw, I think, one of the investors in Matterhorn talk about the potential in-service in September, if I recall, on yesterday's call, you guys would know better than I, because I'm sure you were on that call. And that obviously is going to be a big help. But I think it's not the panacea, but it's a step in the right direction. I think that will certainly help Waha. I cannot recall a period over the last nine years where we have seen consistently this level of weakness from Waha. I'm looking around the table here, but I don't think I've ever seen it. I mean, in September, we still have a negative $0.04. Is that where we are? Negative $0.04. Negative $0.04. That's crazy. The PHP from our vantage point and from our customers, I mean, Kris Kindrick can talk about this. I was going to call him Cricket, which is his fan favorite. But our customers could not be happier because they have been able to get Gulf Coast pricing. And even with the weakness in that Houston ship, and that's been a little bit, I think, followed a little bit of the volatility around the up and downs of Freeport, amongst other reasons. But I think they have been very, very happy. I think it has been, obviously, one of the differentiators for us. It's the reason that we continue. The Durango customers, all want Gulf Coast pricing. And so we see an opportunity to give that benefit up there, up the northern end of the Delaware, where they've really been starved and very much focused on traditionally an EP Permian price. So I think we think that probably the net benefit fades to some extent with, obviously, Matterhorn. But as evidenced, you had the comment yesterday in-service of Matterhorn, and we're still negative four. We were negative 23 or 24, and now we're negative four, but we're still negative. So I would say it's certainly -- you continue to have a lot more gas, and we continue to need a lot more egress solutions for the Permian. And our customers will remain very happy, and so will we with all the space that we have.

Got it. That's helpful. Thank you.

Thank you. Our next question comes from the line of Tristan Richardson with Scotiabank. Tristan, your line is now open.

Hi. Good morning, guys. Jamie, you noted the high teens growth across your footprint, which includes Durango and the Lea County, MVCs. Can you talk about the better outlook you're seeing in the base business? Is this all just higher growth in New Mexico? Is this efficiencies, completion efficiencies, GORs? Just maybe kind of curious what you're seeing in the base business across Delaware?

So think of it this way. I think it should be telling in my earlier commentary, 20% of our gas now comes from New Mexico. When did that start? January of 2025. Bingo. It was like the lights went on and we had a massive infusion coming out of New Mexico. And obviously Durango adds to that because it's an existing business. I think our base business, what's really the proudest thing about what I can see for this company is that for so long, we would engage with you and with investors and talk about the promise and prospect of something like Alpine High. Alpine High, we had 140 million cubic feet a day. And maybe some of the other questions that are going to follow. If you go and just take that on top of our 1.58 BCF a day of processing capacity, we're over 1.7, right? Over 1.7 inlet for our business. That's pretty staggering. And remember that is before you really take Durango, right? Durango doesn't show up, if you will, until the second half of this year. And we have 2 BCF a day of total inlet capacity. So I would say our base business has been pretty -- it's kind of, there's some growth. It's not spectacular, but it's not -- it's nowhere near we think is game changing and landscape impacting as what we see with New Mexico.

That's helpful context. And then you noticed in this -- you noted in the first 100 days, seeing some of these small expansion upgrade opportunities that would be a Dagger Draw or the 20-inch line. Should we think of these opportunities as part of that 5.5 times 2025 you talked about when you announced the deal? Or could these opportunities be incremental to that? And maybe is it a way to think about these opportunities?

So Tristan, I think you think about the magnitude, right? I do think on the basis of the stair step that I laid out as far as inlet expansion at Durango, if 200 represents a 70, 75 base and 400, which is the addition of Kings Landing I gives you a base that when sold out, looks like 150. And then you're later the next year because we have it in our numbers and you have it as part of the Eddy County capital that we gave you, you go to 500. Then that's obviously going to add you another almost $40 million. And then you're thinking about a Kings Landing II. That would add you a potential another 70 to 75 million on top. This is, I mean, five times is how we thought about on the basis of, yes, that 150, 160 of EBITDA and you've got, you bought, you paid with stock and with cash and with capital deployed, you've got eight plus $100 million of total consideration. And that's how you do the simple math. We're talking about things that drive the returns significantly greater than that set up basis that I just that outlined.

That's super helpful. Appreciate it. Thank you guys.

Thank you. Our next question comes from the line of Spiro Dounis with Citi. Spiro, your line is now open.

Thanks, operator. Morning team. Maybe to start -- first question just on the asset mix going forward, following Durango and some of these opportunities that are coming out now, it sounds like it's going to swing you really more towards a GMP asset base. And so just curious, is the rapid set on your part to have that pipeline transport exposure, maybe keep pace so you can maintain that integrated profile?

I think, Spiro, already is, but as we've mentioned, you have an interesting decision to make, right? We have more -- we have, as we look at our forecast, we could obviously join forces with a number of players that have projects for egress and think about taking an equity stake, much like obviously, Targa [ph] just did with obviously with Blackcomb. We could have played that role almost the same. I think what we've been consistently telling you is we're focused on shorter dated conversion cycles on deployment of capital. In other words, don't deploy capital and then two and a half years or 30 months or 26 months or whatever the timeframe is before you start to see cash flow. Try to make it obviously the deployment and the cash flow receipt within a much shorter space of time. That we could see on an intrabasin basis. So, Delaware Link continues to be something that we're really -- has been a really strong contributor to our overall business. We see it on our Kinetik NGL business. We're looking for other opportunities as to how we can do that. They are shorter builds from a -- they're smaller in scale, shorter duration and immediate cash flow and obviously they help the base business. So, we are mindful of keeping that mix. It is going forward with obviously the GMP uplift 65, 35, which is sort of, I think, where we first started life as a pro forma merge company with Kinetik back in 2022? Maybe -- and we'd like to build it up again. So, we're looking for opportunities that continue to allow us to keep that mix balanced.

Got it. Understood. Helpful color. Second question, just wanted to quickly go back to free cash flow and how to think about the outlook. Jamie, in response to an earlier question, I think you said you're highly focused on being free cash flow positive. I think for '24, we can get there. That seems like a pretty easy lift. I guess, as you think out of the '25, with all these projects coming, obviously a high class problem to have, but do you still think that's something sort of durable out over a multi-year basis from here?

Yes, I think, look, when you think about what we've got going forward, right? I think, Spiro, you and I have talked about this with Trevor and Maddie and Alex from time to time. Our overall base business, when we think about '25, is our base business, meaning the legacy business, is probably $100 million of capital for '25. And then you've got, obviously, the Eddy County expansion, which I said, that 200 million split 50, 150. And then, obviously, you've got the balance of Durango. And I really do think we're going to try that to manage from a capital deployment standpoint, how we think about managing it relative to, obviously, the EBITDA profile. We do see, obviously, really good top-line growth, 14% year-on-year to the midpoint, I think it is. I think you've heard me say before, I would challenge you to find another company where I can look out the next several years and think about an EBITDA growth. '25, '26 now, '27 at sort of a double-digit rate, that is hard to do. You can't do it forever. You can do it for a time. But that's the strength that we see when you add in Durango and you look at our base business and some of the changes, such as the NGL contract changes that happened in '26, and obviously, partial benefit, '27 full benefit, there's lots of things going on. And so, we will think about that top-line growth and how that allows us to, obviously, then think about our overall capital deployment. So I do think '25, you still see the positive free cash flow. As we mentioned, we put it in the press release, I think pro forma, the second half of '25, what, 10% increase in free cash flow per share as a result of the Durango transaction. So I do think it's very much the blueprint.

Great. That's helpful color. Jamie, I'll leave it there. Thanks.

Thanks.

Thank you. Our next question comes from the line of Keith Stanley with Wolfe Research. Keith, your line is now open.

Hi, good morning. Following up a little bit on the importance of positive free cash flow for you, how are you thinking about when you could restart dividend growth for the company since you're a capital leverage target, but obviously having a lot of growth opportunities accelerating?

Keith, good morning. Nice to hear from you. You're very consistent on the dividend. You get the prize. I think we have talked to you at length on the dividend, and it is not lost on us that we have had a lot of support and patience in shareholders. Honestly, I look at the picture and believe that we can manage both from a growth standpoint within our capital growth so that everyone wins. So I think as we've always said, you need to be thoughtful as to exactly the increase you would think about, but I think it is manageable. And so, I would say nearer term, not longer term as to an action.

Great. That's helpful color. Second question, can you just maybe give an update on the importance of eventually connecting the legacy Kinetik and Durango footprints, what it would add for you and how you're thinking about doing that, whether it's building or potentially through transactions?

Really good question. So we've said, every commercial opportunity has to stand on its own merit. And if we see opportunities, whether we're going to Eddy County and thinking into Lea County, that give us an opportunity either to connect to the existing Pegasus lateral, which is the one that goes up into Lea County, ultimately how that connects ultimately to Durango, and then we think about how we then think about Eddy County. We will engage in conversations with producers. We're not going to build just for the sake of building. We will only build to the extent that there's a compelling commercial underwritten proposition that justifies and warrants the connection.

Thank you.

Thank you. Our next question comes from the line of Theresa Chen with Barclays. Theresa your line is now open.

Good morning. Following the FID and eventual in-service of Kings Landing II, how much runway does that give you, given the growth outlook you have for the acreage? And can you talk about additional opportunities beyond that and how that ties into your view of runway CapEx on an annual basis going forward?

Really good question, Theresa. I would say, we are seeing obviously a sight line for overall production growth up in the Northern Delaware and the shelf that would support a Kings Landing II development. As I mentioned at the outset, what's fascinating about that particular area is that the drill bit is handicapped by processing capacity. Can't flare. You really need a solution on the gas side, and so it makes for a very challenging, I think, proposition for producers. So our sight line certainly sees us through a KL2. Does it go on beyond that? I think it's too early to tell. We sit here now, and we are 40 days into owning Durango. Admittedly, we had six-plus weeks as we went through the FTC process, and we engaged in some conversations with customers, but really the engagement has started in earnest over the last sort of six-plus weeks. And it's not just processing capacity, right? Because as I mentioned, one of the things that we're really focused on is we can build processing, but we need egress. An Egress comes in the form of two flavors, residue and NGL. Anne Psencik would tell you up there, you've got telescopic pipelines that are pretty much all full. It's not really a great outcome. You've got some challenges. You really just have TW. You've got EPNG. You've got EE. There are challenges on each of those because of how full they are and how full they run. So I think there's a lot of things that have gone into some of the early decisions and some of the, I would say, early analysis on Kings Landing II. So line of sight, TBD, sort of watch this space over time, and we can keep you apprised on how you're seeing. Now the interesting thing when we go down south is, I know everyone focuses on AI and gas growth and what this all means. The thing that I probably didn't complete in my statement is what makes me proudest about where we sit now is, I really feel like Alpine High isn't even in the vernacular of this company anymore. And all the growth that we see, there's nothing predicated on Alpine High. If Alpine High just stays as it is, it doesn't make a difference to us. If it grows significantly because there's a call on gas with gas prices, well, that's going to have an impact as well because as we know, it's in a highly gassy area. So I really do think that's a pretty interesting change, not subtle, pretty significant and profound for the company as a whole.

Thank you so much.

Thank you. Our next question comes from the line of Neel Mitra with Bank of America. Neel, your line is now open.

Hi, good morning. I wanted to kind of understand the run rate CapEx or how we should be thinking about it now that the business has changed so much. Obviously, it's lifted with the Durango acquisition, but we have possible Kings Landing II, other additions. Just when you think about the GMP spending going forward, is there some number that we should try to put in there as a good run rate, understanding that things are constantly changing?

I'd love to tell you that it wasn't that easy, and obviously, it is more, I think, it has ebbs and flows, and obviously, you're not necessarily going to be, as it is, we're building a Cryo now, so obviously, and we've started the pre-FID work on a second Cryo. That's probably -- that's not necessarily the norm that a company of our size would be considering to look at building process and capacity on a sequential basis, and you might have more of a peak and then a trough. As it relates to this year at 2.80 [ph], I think you've heard from us with Trevor that, look, I think if we were going to -- and you've got to be very careful as you think about our overall percentages and how you think about it, but you've got something that's probably 200 million, 400 kind of million dollars, I think is a good -- I know that's a really wide range, and I apologize, but it's hard to give you any real precision because you don't really know. But that's the sort of amount that I think you would be -- peak would be one thing, 200 would be another. I really do think that's pretty good. As I said, our base business next year, we thought about $100 million. And yes, that's got well-connects and that's got maintenance capital in it, and that's got some looping, it's got some compression, so you've got growth in that number, and that base business is a pretty big business, but it's more mature, right? It's more mature and built out. My sense is with Durango, the 20-inch goes a long way. There's a lot more low pressure, which would be more, which would be, I'm looking at Kindrick, a higher capital burden, right, for smaller producers, so I think if base business is 100, maybe once you've got the processing capacity, maybe you're looking at 50 to 100 for like a Durango, just given well-connects, looping, other things.

Neel, this is Kris, its piggybacking on that too, I don't want to be lost in the group that -- we're seeing much higher margins up in Durango too, so a dollar capital invested up there is going to return a higher amount, so --

Yes, if we have an average on a dollar, like a buck 10 MCF, you're looking at a 50% increase on that margin, right, up there in the north, and that's obviously because you're packaging everything, compression, treating, gathering, processing, and so that's obviously very, very attractive. And treating, I know we've spent a lot of time talking about treating. Treating is, I think, one of the real, real focuses for our producers just given the dispersion of gas quality that they find.

Okay, perfect, appreciate the color. My second question is around the base business in the Southern Delaware. Jamie, you were alluding to the fact that Waha is still negative and probably will be until Matterhorn comes online. Given that a lot of your producers have roughly 50-50 oil and gas splits in that basin, have you seen any curtailments, any wells that are delayed, being turned in line such that once Matterhorn comes in line that you see kind of a surge in growth for the last four months of the year?

As far as broad-based curtailments, I think Apache is really the whole story, and that's really Alpine High, both rich and lean. I would say delayed completions, Callan [ph] would probably be the ones as far as, but they weren't delayed because of gas prices, they were delayed because of an acquisition, and I think just, you know, the typical pause that you have after you close a transaction and you sort of want to assess everything. I don't sense that there's been any impact on us. We continue to see good turn-in-line activity, and I think, as we indicated in our materials, we'll have a full return to service in the fourth quarter of obviously the Apache Alpine High volume. So, I think that will obviously be a benefit because we weathered through that impact financially in the second quarter, and we -- I look at it and say, it was pretty amazing how good the business is running on the basis that we made consensus and we had a mismatch between our closing of Durango, which was the end of June, and the GCX deal, which was the beginning of June. So, yes, kind of only had, we had one month missing out of the pipeline transportation segment as well, and yet we still hit the consensus estimates.

Neel, this is Kris. It's worth noting, too, a large percentage of our customers move their gas on PH and are exposed to different gas markets, so they aren't as exposed to Waha, which is another benefit that we provide our customers. So, another reason why we're not seeing the impact to a large majority of our customers.

Right. Right. Great. Appreciate all the colors.

Thanks Neel.

Thank you. [Operator Instructions] Our next question comes from the line of Jackie Colitis with Goldman Sachs. Jackie, your line is now open.

Hi. Good morning. Thank you for taking my question. Just wanted to have another follow-up on New Mexico. So, you were able to realize an uplift on your system there prior to MVCs that started in April and May. Just more broadly, where do you see New Mexico trending from here? And do you expect to see upside from that new amendment in Lea County prior to the fourth quarter?

So, Jackie, the new amendment on the Lea County MVC will start, I think it's kind of November of this year, so you won't see a benefit before November. Great customer relationship makes all the sense in the world. It's really a discussion driven around treating more so than just about anything else. And I think we've been probably a broken record on this point. Matt Wall and the operations team have done a phenomenal job, and we've taken elevated levels of CO2 and even we've seen nitrogen and obviously H2S. So, we've really, really had -- I think, a really strong out of the gate showing on what we've been able to do on the blending and treating side. As far as New Mexico from here, honestly, I think it's the story. I think it's the story for this company, right? I mean, we've got a nice base, don't get me wrong, and that provides great blend stock, given its sweet. We've got some great customers. But if you're looking for significant stair-step changes in the context of the growth on our system with volumes and obviously financial margin that's created, New Mexico is the story. And so, what that looks like going forward, as I said, we will see another 200 million cubic feet a day. That will be our inlet capacity when we finish Kings Landing I and expect it in-service April of next year. We expect it to be full pretty quickly. We're already going to go from 400 to 500. We've talked about Dagger Draw, some additional recompression and moving 60-day Cryo that we have, that we're going to move up there. So, that's going to be, I think, another blessing for the producers up there. So, you can see, just look at it, if you just measure it nothing more than just the inlet capacity expansions, it's all about New Mexico right now. And that, obviously, is consistent with what we see with our producers and how they're deploying and allocating capital. And obviously, we will be right there with them to provide the needed services that they're looking for.

Great. Appreciate it. And just as a follow-up. So, as you grow -- as your processing grows, do you get to a critical mass where you think you'll have enough NGLs where you'd want to build your own NGL assets over time?

The short answer is, look, we could all aspire to different things, but the reality is, when you're dealing with, relative to what I'll call the enterprises, targets, transfers, one-oaks of the world, the size of their asset base between Bellevue and, obviously, their long-haul pipelines into the basin are such that we could never compete and we would never contemplate thinking about competing. We don't have an export capacity. We think we can do things contractually, which we've done. As far as we have a diversification of NGL service providers, which is obviously a net benefit. We've got great relationships. We own a portion of Shin Oak. So, we think that we can participate and give that vertically integrated value chain an optionality to our customers, but no, we're not going to get into the NGL business and that's just beyond, I think that's beyond our wallet.

Got it. Thank you so much. Appreciate the time.

No problem. Thank you Jackie.

Thank you. There are no questions registered at this time, so I will pass the call back to Jamie Welch for any closing remarks.

Thank you, everyone. We're really excited, as you could probably tell a really solid quarter, really excited about the outlook for the business and enjoy the rest of your summer. I no doubt we'll see some of you next week and then we'll start it back up in the fall, straight after Labor Day. So, reach out if there are any questions and thank you for your time this morning.